Question 1

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Accepted Answer

A) True 
 B)False

Question 2

Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. A movement of the economy from point A to point B, and at the same time a movement from point C to point D, would be described as

Accepted Answer

A)  the outcome of a favorable supply shock.
B)  falling inflation.
C)  stagflation.
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 3

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Accepted Answer

A)  the recession that followed smaller and so provided a more favorable tradeoff between inflation and unemployment.
B)  the recession that followed smaller, but in doing so produced a less favorable tradeoff between inflation and unemployment.
C)  the recession that followed larger, but in doing so provided a more favorable tradeoff between inflation and unemployment.
D)  the recession that followed larger and also produced a less favorable tradeoff between inflation and unemployment.E) A) and C)
F) A) and D)

Question 4

There is an adverse supply shock. In response the Federal Reserve pursues an expansionary monetary policy. Taking into account both the shock and the Federal Reserve's policy, which of the following are we sure of?

Accepted Answer

A)  unemployment will be higher
B)  unemployment will be lower
C)  inflation will be higher
D)  inflation will be lowerE) All of the above
F) A) and B)

Question 5

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Accepted Answer

A) True 
 B)False

Question 6

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Accepted Answer

In the long run the natural rate of unem...

Question 7

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Accepted Answer

A)  a sacrifice of 5 percent of annual output.
B)  a sacrifice of 5 percent of government spending.
C)  an increase in the unemployment rate of 5 percentage points.
D)  a 5 percent increase in the government budget deficit.E) C) and D)
F) B) and D)

Question 8

Suppose that a drought significantly reduces agricultural production one year. Which of the following would likely occur as a result of the bad weather?

Accepted Answer

A)  The short-run aggregate supply curve will shift to the right, and the short-run Phillips Curve will shift to the right.
B)  The short-run aggregate supply curve will shift to the right, and the short-run Phillips Curve will shift to the left.
C)  The short-run aggregate supply curve will shift to the left, and the short-run Phillips Curve will shift to the right.
D)  The short-run aggregate supply curve will shift to the left, and the short-run Phillips Curve will shift to the left.E) A) and C)
F) B) and D)

Question 9

Which of the following shifts the long-run Phillips curve left?

Accepted Answer

A)  both an increase in the inflation rate and a decrease in the minimum wage rate
B)  an increase in the inflation rate, but not a decrease in the minimum wage rate
C)  a decrease in the minimum wage rate, but not an increase in the inflation rate
D)  neither a decrease in the minimum wage rate nor an increase in the inflation rateE) C) and D)
F) B) and D)

Question 10

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Accepted Answer

Since this would raise the nat...

Question 11

If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Accepted Answer

A)  1.
B)  2.
C)  3.
D)  None of the above is correct.E) None of the above
F) A) and D)

Question 12

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Accepted Answer

A)  is completely correct.
B)  is completely wrong.
C)  is true for the short run but not the long run.
D)  is true for the long run but not the short run.E) A) and B)
F) All of the above

Question 13

Which of the following played a role in depressing aggregate demand in 2001?

Accepted Answer

A)  the end of a stock-market bubble
B)  corporate accounting scandals
C)  the terrorist attacks on September 11 of that year
D)  All of the above are correct.E) A) and C)
F) C) and D)

Question 14

What is meant by the natural rate of unemployment?

Accepted Answer

It is the rate of un...

Question 15

According to the Phillips curve, policymakers can reduce inflation by

Accepted Answer

A)  contracting aggregate demand. This contraction results in a temporarily higher unemployment rate.
B)  contracting aggregate demand. This contraction results in a temporarily lower unemployment rate.
C)  expanding aggregate demand. This expansion results in a temporarily lower unemployment rate.
D)  expanding aggregate demand. This expansion results in a temporarily higher unemployment rate.E) All of the above
F) None of the above

Question 16

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Accepted Answer

A)  Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate.
B)  Expected inflation would exceed actual inflation, and unemployment would be below its natural rate.
C)  Actual inflation would exceed expected inflation, and unemployment would exceed its natural rate.
D)  Actual inflation would exceed expected inflation, and unemployment would be below its natural rate.E) A) and C)
F) B) and D)

Question 17

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Accepted Answer

A)  increase the money supply growth rate which raises the inflation rate.
B)  increase the money supply growth rate which reduces the inflation rate.
C)  decrease the money supply growth rate which raises the inflation rate.
D)  decrease the money supply growth rate which reduces the inflation rate.E) A) and B)
F) A) and C)

Question 18

An adverse supply shock causes inflation to

Accepted Answer

A)  rise and the short-run Phillips curve to shift right.
B)  rise and the short-run Phillips curve to shift left.
C)  fall and the short-run Phillips curve to shift right.
D)  fall and the short-run Phillips curve to shift left.E) A) and B)
F) B) and C)

Question 19

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Accepted Answer

A)  higher unemployment and lower output.
B)  higher unemployment and higher output.
C)  lower unemployment and lower output.
D)  lower unemployment and higher output.E) B) and D)
F) B) and C)

Question 20

Write the equation representing the short-run Phillips curve.

Accepted Answer

Unemployment rate = ...

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Correct Answer
verified

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Correct Answer
verified

There is an adverse supply shock. In response the Federal Reserve pursues an expansionary monetary policy. Taking into account both the shock and the Federal Reserve's policy, which of the following are we sure of?

Correct Answer
verified

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Correct Answer
verified

Correct Answer
verified

Which of the following played a role in depressing aggregate demand in 2001?

Correct Answer
verified

What is meant by the natural rate of unemployment?

Correct Answer
verified
It is the rate of un...
View Answer

According to the Phillips curve, policymakers can reduce inflation by

Correct Answer
verified

An adverse supply shock causes inflation to

Correct Answer
verified

If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Correct Answer
verified

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Correct Answer
verified

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Correct Answer
verified
Since this would raise the nat...
View Answer

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Correct Answer
verified

Suppose that a drought significantly reduces agricultural production one year. Which of the following would likely occur as a result of the bad weather?

Correct Answer
verified

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Correct Answer
verified
In the long run the natural rate of unem...
View Answer

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Correct Answer
verified

Write the equation representing the short-run Phillips curve.

Correct Answer
verified
Unemployment rate = ...
View Answer

Which of the following shifts the long-run Phillips curve left?

Correct Answer
verified

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Correct Answer
verified

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Correct Answer
verified

Exam 35: The Short-Run Tradeoff Between Inflation and Unemployment

In the 1970's the Federal Reserve responded to an adverse supply shock. Its policy made

Correct AnswerverifiedShow Answer

Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate.

Correct AnswerverifiedShow Answer

There is an adverse supply shock. In response the Federal Reserve pursues an expansionary monetary policy. Taking into account both the shock and the Federal Reserve's policy, which of the following are we sure of?

Correct AnswerverifiedShow Answer

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following played a role in depressing aggregate demand in 2001?

Correct AnswerverifiedShow Answer

What is meant by the natural rate of unemployment?

Correct AnswerverifiedIt is the rate of un...View AnswerShow Answer

According to the Phillips curve, policymakers can reduce inflation by

Correct AnswerverifiedShow Answer

An adverse supply shock causes inflation to

Correct AnswerverifiedShow Answer

If a central bank reduced inflation by 2 percentage points and that made output fall by 3 percentage points for 2 years and the unemployment rate rise from 3 percent to 5 percent for 2 years, the sacrifice ratio is

Correct AnswerverifiedShow Answer

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Correct AnswerverifiedShow Answer

Suppose, as in the 1970's in the U.S., that demographic groups which typically have higher unemployment rates become a larger percentage of the labor force. Would this have any effect on the long-run Phillips curve?

Correct AnswerverifiedSince this would raise the nat...View AnswerShow Answer

The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument

Correct AnswerverifiedShow Answer

Suppose that a drought significantly reduces agricultural production one year. Which of the following would likely occur as a result of the bad weather?

Correct AnswerverifiedShow Answer

In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Correct AnswerverifiedIn the long run the natural rate of unem...View AnswerShow Answer

If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should

Correct AnswerverifiedShow Answer

Write the equation representing the short-run Phillips curve.

Correct AnswerverifiedUnemployment rate = ...View AnswerShow Answer

Which of the following shifts the long-run Phillips curve left?

Correct AnswerverifiedShow Answer

According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.

Correct AnswerverifiedShow Answer

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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It is the rate of un...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Since this would raise the nat...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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In the long run the natural rate of unem...
View Answer

Correct Answer
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Correct Answer
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Unemployment rate = ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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